Financial Repression and a Chronic Unemployment Problem

What is little appreciated today is that the Humphrey
Hawkins Full Employment Act in 1978 assisted in "birthing" Financial
Repression and placing us firmly on the Monetary policy path the Federal
Reserve is presently imprisoned by.

Deep State planners fully understood then that employment would become an
increasingly larger problem in America and within the developed nations as
leveraged buyouts with immediate "downsizing", "rightsizing" and "outsourcing"
were beginning to dominate the financial engineering game of the day.

Driven by the political concerns in the late 1970s about rising unemployment,
the Humphrey-Hawkins legislation in 1978 fundamentally compelled the U.S. central
bank to drive interest rates progressively lower (see chart below).

Casual observers of the Fed speak of a "dual mandate" for U.S. monetary policy
incorporating full employment and price stability, but careful reading of the
Humphrey-Hawkins law shows that the former is paramount and must be satisfied
by the Fed before price stability may be considered. Federal Reserve chairs
have followed the single mandate of full employment to its logical conclusion,
namely zero interest rates and the expropriation of private income.

With the peak in nominal rates in the late 1970's the Fed switched priorities
and became focused on the single mandate of full employment. This policy fixation
on targeting at least nominal employment had significant costs, including a
steady level of underlying inflation that has slowly undermined consumer purchasing
power (thus, today's discussion of "income inequality"). The single mandate
of full employment also facilitated periodic financial bubbles and crises resulting
from the manic swings in Fed policy.

What Then Followed

I found the remarks presented by Christopher Whalen of Kroll Bond Rating Agency
(KBRA), at the Central Banking Series sponsored by the Global Interdependence
Center in Dublin, Ireland and Madrid, Spain, September 29 and October 3, 2016
to be particularly supportive of the Financial Repression Authority's position. As
Chris Whalen highlights in Navigating
an Uncertain Global Economy in the Age of Financial Repression, Financial
Repression has fostered deflation and crippled income growth.

Central to any new approach to monetary policy must be the realization that
the secular decline of interest rates, which is the centerpiece of financial
repression, necessarily also drives deflation. Today, the Federal Open Market
Committee frets over whether to raise the benchmark rates for federal funds
and bank reserves a mere quarter of a percentage point. Yet anyone looking
at the bond markets and, in particular, at bond credit spreads knows that
there is not yet sufficient demand for credit to justify an increase in interest
rates. Without a sustained increase in the yield on investment assets, the
world faces a protracted period of low or no growth and the eventual destruction
of public and private financial institutions that depend upon investment
returns.

Just as many organizations used to rely upon the returns on investments
to bolster profitability in particular, today the global economy is suffering
from a diminution of income as a result of more than 30 years of financial
repression. The trillions of dollars annually that is transferred from private
organizations and individuals to public sector institutions via negative
interest rates and quantitative easing (QE) ranks among the most regressive,
anti-growth policies ever witnessed in peacetime.

…

Since the 2008 financial crisis, global growth has slowed and the overall
level of debt has grown. Individuals in many nations have made an attempt
to reduce their level of indebtedness, but in aggregate since 2008 nations
have gone on a debt-fueled spending binge encouraged by the fact that the
cost of servicing public sector debt has fallen. Open market purchases of
public and private debt have been employed by global central banks to push
interest rates down to zero or lower, this in an overt effort to stimulate
asset prices, shift investor risk preferences, and thereby, it is hoped,
stoke higher levels of aggregate demand.

Stepping back, we can see that in 20th century America, credit has been used
to increase sales as opposed to forcing consumers to save sufficient cash to
purchase an automobile or home in the future.

The judicious use of credit increased demand for goods and services, and employment.
Today, however, the policy of using ever cheaper credit to pull tomorrow's
demand into the present day seemingly has lost its efficacy. With most nation-states
unwilling or unable to use fiscal expansion to stoke short-term demand, global
central banks acting alone have been asked to somehow address the burdens of
global over-capacity, excessive debt, rising unemployment and slack consumer
demand – simply an impossible feat!

The Roadmap of How Financial Repression Was Further Sustained Via Regulatory
Legislation

Gordon T. Long has been publically offering his financial and economic writing
since 2010, following a career internationally in technology, senior management & investment
finance. He brings a unique perspective to macroeconomic analysis because
of his broad background, which is not typically found or available to the
public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years.
Earlier in his career he was involved in Sales, Marketing & Service of
computing and network communications solutions across an extensive array of
industries. He subsequently held senior positions, which included: VP & General
Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL -
Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of
Cambex, a highly successful high tech start-up and public company (Nasdaq:
CBEX), where he spearheaded global expansion as Executive VP & General
Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly
emerging Internet Venture Capital and Private Equity industry. A focus in
the technology research field of Chaos Theory and Mandelbrot Generators lead
in the early 2000's to the development of advanced Technical Analysis and
Market Analytics platforms. The LCM Groupe is a recognized source for the
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Mr. Long presently resides in Boston, Massachusetts, continuing the expansion
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Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in
Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive
5 year specialized Co-operative Engineering program he pursued graduate business
studies at the prestigious Ivy Business School, University of Western Ontario
(Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently
selected to attend advanced one year training with the IBM Corporation in
New York prior to starting his career with IBM.

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